AFTAB E. PATEL, MUMBAI V. ACIT CEN CIR 13, MUMBAI

ITA 792/MUM/2010

• Counselvise Citation: 79219914 RSA 2010
• Duration Of Justice: 5 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 08-01-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 02-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJIT K SRIVASTAVA
• Assessee Lawyers: DEEPAK TRALSHAWALA
• Keywords: Bogus purchase; Unexplained cash credit; Search and seizure; Retraction; Penny stocks
• Section: 68

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO.: 792/MUM/2010 (ASSESSMENT YEAR: 2003-04) MR. AFTAB E PATEL, 28, NOON BAKER APARTMENT, 7 TH FLOOR, MOTLIBAI STREET, AGRIPADA, MUMBAI - 400 011 PAN: AABPP 1421 F VS ACIT- CENTRAL CIRCLE -13, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK TRALSHAWALA RESPONDENT BY : SHRI AJIT K SRIVASTAVA ITA NO.: 783/MUM/2010 (ASSESSMENT YEAR: 2003-04) MRS. AISHA AFTAB PATEL, 28, NOON BAKER APARTMENT, 7 TH FLOOR, MOTLIBAI STREET, AGRIPADA, MUMBAI - 400 011 .: PAN: AGIPP 8217 G VS ACIT- CENTRAL CIRCLE -13, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK TRALSHAWALA RESPONDENT BY : SHRI AJIT K SRIVASTAVA !' # $% /DATE OF HEARING : 08-01-2015 &'( # $% / DATE OF PRONOUNCEMENT : __ -02-2015 * + * + * + * + O R D E R , , , , : :: : PER VIVEK VARMA, JM: THE APPEALS ARE FILED BY THE TWO ASSESSEES AGAINST THE ORDERS OF CIT(A) 37, MUMBAI, DATED 14.12.2009. SINCE BOTH T HE APPEALS HAVE TWO COMMON GROUNDS, WE PROPOSE TO PASS C OMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. : 792/MUM/2010 : AFTAB E PATEL : 2. IN THIS APPEAL ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN AFTAB E PATEL ITA 792/M/2010 AISHA AFTAB PATEL ITA 783/MUM/2010 2 LAW, THE LEARNED CIT (A) 37, MUMBAI HAS ERRED IN HO LDING THAT THE CAPITAL GAINS OF RS. 22,36,965/- RETURNED BY ASSESSEE IS BOGUS AND CHARGED THE SAME AS UNEXPLAIN ED CASH CREDIT ON THE GROUNDS THAT THE CAPITAL GAINS T HE APPELLANT NEITHER SATISFACTORILY EXPLAINED THE PURC HASES OF SHARES NOR THE SALES THEREOF AND THEREFORE THE N ATURE AND SOURCES OF THE INCOME CREDITED TO THE BOOKS OF ACCOUNT REMAINED NOT PROPERLY EXPLAINED. 2) THE LEARNED CIT (APPEALS) HAS ERRED IN HOLDING THAT 5% SERVICE CHARGE OF RS. 111,848/- BEING 5% OF RS. 22,36,965/- IS CHARGED TO TAX ON THE GROUND THAT SO URCE OF PURCHASE OF ABOVE SHARES WAS NOT PROPERLY EXPLAI NED AS NO PERSON WILL ARRANGE THE BENEFIT OF NON-GENUIN E LONG TERM CAPITAL GAIN TO OTHER PERSON WITHOUT CHARGING THE COMMISSION/SERVICE CHARGES. THE APPELLANT CRAVES TO LEAVE TO ADD, TO ALTER AND AMEND THE ABOVE GROUNDS OF APPEAL AS THE OCCASION MAY DEMAND OR CIRCUMSTANCES REQUIRE. 3. THE FACTS ARE THAT A SEARCH AND SEIZURE OPERATIONS W ERE CONDUCTED ON THE MR. AFTAB E PATEL AND MRS. AISHA AFTAB P ATEL ON 10.01.2007, WHEREIN THE SEARCH PARTY FOUND CERTAIN JEW ELLERY AND CASH. BESIDES CASH AND JEWELLERY, THE SEARCH OFFICERS ALSO FOUND THAT THE ASSESSEE HAD DECLARED LTCG OF RS. 22,36,9 65/- ON THE SALE OF SHARES, WHICH ACCORDING TO THE REVENUE A UTHORITIES WERE RESULT OF PENNY STOCKS DEALINGS IN THE SHARES OF M/S . ELTROL LTD. AND M/S. DATABASE FINANCE LTD. ACCORDING TO THE DET AILS AS FOUND, THE ABOVE SCRIPS WERE PURCHASED AT RS. 1.20 AND R S. 1.19 PER SHARE RESPECTIVELY AND THE ASSESSEE SOLD THE SHAR ES DURING THE YEARS AT RS. 29.55 PER SHARE AND RS. 29.68 PER SHAR E OF ELTROL LTD. AND AT RS. 78.45 PER SHARE OF DATA BASE FINANCE LTD. 4. POST SEARCH, IN THE PROCEEDINGS U/S 153A, DETAILED ENQUIRIES WERE CONDUCTED AND THE ASSESSEE PROVIDED THE DETAILS OF PURCHASE AND SALE OF SHARES, AS S. NO. NAME OF SCRIP QUANTITY SALE YEAR AND NAME OF BROKER GROSS SALE CON- SIDERATIO N ACTUAL LONG TERM CAPITAL GAINS(RS NAME OF BROKER FROM WHOM PURCHA SED THE SHARES AFTAB E PATEL ITA 792/M/2010 AISHA AFTAB PATEL ITA 783/MUM/2010 3 & YR. OF PURCHA SE 1 M/S DATABASE FINANCE LTD. 1400 FY 03-04 ACTION FINANCIAL SERVICES (INDIA) LTD. 10,66,064 10,54,108 M/S DRISHTI SECURITIE S P LTD FY 2001-02 2 M/S ELTROL LTD. 40000 FY 02-03 ACTION FINANCIAL SERVICES INDIA LTD. 11,70,901 11,18,340 M/S DRISHTI SECURITIE S P LTD FY 2001-02 TOTAL 22,36,965 21,72,448 (THOUGH CLAIMED AT 21,72,305) 5. THE AO CONDUCTED ENQUIRY FROM THE BROKER FROM WHOM T HE SHARES WERE PURCHASED, I.E. M/S DRISHTI SECURITIES LTD., WHE REIN ITS DIRECTOR MR. NARENDRA R SHAH DEPOSED THAT NO SUCH SHARES WERE EVER TRANSACTED FOR MR. AFTAB E PATEL/MRS. AISHA A P ATEL. ON BEING QUESTIONED, THE ASSESSEE SUBMITTED THAT HE HAD MADE THE PURCHASES THROUGH THE BROKER. IF THE BROKER HAD R ESPONDED THAT NO SHARES WERE NOT ROUTED THROUGH THE STOCK EX CHANGE, WOULD NOT ALTER THE FACT THAT THE ASSESSEE HAD MADE A GENUINE PURCHASE. SIMILARLY IN CASE OF SALE OF SHARES, THROUGH M/S ACTION FINANCIAL SERVICES (INDIA) LTD., IT WAS NOTICED THAT DATE OF S ALE BILLS AND CONTRACT NOTES DID NOT MATCH. ON THESE SALE OF SHARES AND CONSEQUENT CAPITAL GAINS, THE ASSESSEE CLAIMED THE CA PITAL GAINS. THE ENTIRE EXERCISE AND EXPLANATION DID NOT IMPRESS THE AO. THE ASSESSEE THEREFORE, WITHDREW CAPITAL GAINS SHOWN B Y THE ASSESSEE AND PAID TAXES THEREON. 6. ON THIS BASIC BACKGROUND, THE AO PROCEEDED TO TREAT THE SALE PROCEEDS AS UNEXPLAINED CREDIT IN THE BOOKS AND ADD ED THE SAME U/S 68 OF THE INCOME TAX ACT, 1961 AND HE FURTHER ADDED BACK RS. 1,11,848/- BEING 5% COMMISSION PAID FOR THIS TRANSACTION. AFTAB E PATEL ITA 792/M/2010 AISHA AFTAB PATEL ITA 783/MUM/2010 4 7. THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO. THE CIT(A) AFTER CONSIDERING DETAILED SUBMISSIONS, CONCLUDED, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, IT IS HELD THAT THE APPELLANT HAS NOT B EEN ABLE TO CONCLUSIVELY PROVE THE PURCHASES OF PENNY STOCK SHARES OF ELTROL LTD. AND DATABASE FINANCE LTD. AND THE EN QUIRY MADE BY THE INVESTIGATION WING AS WELL AS BY THE LD . ASSESSING OFFICER HAVE ESTABLISHED THAT THE APPELLA NT HAD ARRANGED PURCHASES OF ARTIFICIAL LONG TERM CAPITAL GAIN AND PURCHASES OF ARTIFICIAL SPECULATION GAIN BY OBT AINING BOGUS PURCHASES AND SALES BILLS SHOWING SHARE TRANSACTIONS. AS A BENEFICIARY, THE APPELLANT WAS G IVEN PHYSICAL SHARES ALONG WITH BACKDATED BOGUS PURCHASE BILLS REFLECTING PURCHASES OF PENNY STOCK SHARES AT A VERY LOW PRICE ALMOST ONE YEAR BACK FOR FACILITATING BOO KING OF ARTIFICIAL LONG TERM CAPITAL GAIN HAVING REGARD TO THE AFORESAID FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, IT IS HELD T HAT SECTION 68 IS SQUARELY APPLICABLE IN THIS CASE AND SINCE THE APPELLANT NEITHER SATISFACTORILY EXPLAINED THE PURCHASES OF PENNY STOCK NOR THE SOLES THEREOF, THE NATURE AND SOURCES OF THE INCOME CREDITED TO THE BOOKS OF ACCOUNT REMAIN NOT PROPERLY EXPLAINED. THEREFORE, T HE ALLEGED CAPITAL GAIN OF PS. 22,36,965/- IS CHARGEAB LE TO TAX U/S.68 OF THE ACT. WHEREAS THE LD. ASSESSING OF FICER HAS CHARGED SUCH SUM OF RS. 22,36,965/- AS INCOME F ROM OTHER SOURCES, THE SAME IS CONFIRMED AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT. THE ADDITION MADE BY THE LD. ASSESSING OFFICER IS ACCORDINGLY CONFIRMED, GROUND NOS. 1 TO 12 ARE THEREFORE DISMISSED. 8. THE CIT(A) ALSO DISALLOWED THE COMMISSION COMPUTED AT 5% ON RS. 22,36,965/- AT RS. 1,11,848/- AS THE ENTIRE SET OF CIRCUMSTANCE WAS SHAM AND THEREFORE NOT ALLOWABLE. 9. AGAINST THIS ORDER OF THE CIT(A) THE ASSESSEE NOW BEFOR E THE ITAT. 10. BEFORE US, THE AR SUBMITTED THE FACTS AND TOOK US TH ROUGH THE DOCUMENTS FILED BEFORE THE REVENUE AUTHORITIES. THE AR SUBMITTED THAT IT IS NOT JUST A CASE OF PAPER TRANSACTI ON, BUT IS A CASE WHERE THE ASSESSEE HAD ACTUALLY TAKEN THE DELIVER Y OF SHARES. THIS, HE PROVED BY SHOWING THAT THE SHARE CERTIFIC ATES BORE THE ENDORSEMENT OF HIS NAME ON THE BACK OF THE S HARE AFTAB E PATEL ITA 792/M/2010 AISHA AFTAB PATEL ITA 783/MUM/2010 5 CERTIFICATE (APB 19-33). THE AR ALSO SUBMITTED THAT CONFIRMAT ION LETTERS, BILLS AND CONTRACT NOTES FROM THE BROKER INVOLVED IN PURCHASE AND SALE, ALL DOCUMENTS AND EVIDENCES WERE MAD E AVAILABLE TO THE REVENUE AUTHORITIES BUT THEY DISREGARDED ALL THE DOCUMENTS AND MADE THE ADDITION. 11. THE AR SUBMITTED BEFORE US THAT SINCE THE DOCUMENTS WHICH HAD BEEN PLACED BEFORE THE REVENUE AUTHORITIES, WHIC H WERE TOTALLY WITHOUT PREJUDICE SHOULD HAVE BEEN LOOKED IN TO JUDICIOUSLY. IN SUCH A CIRCUMSTANCE, THE CASES SHOULD BE RESTORED TO THE AO FOR FRESH ADJUDICATION. 12. THE AR ALSO POINTED OUT THAT THE ASSESSEE HAD TAKE N AN ADDITIONAL GROUND OF APPEAL THAT SINCE THERE WAS NO INCRIMINATING MATERIAL FOUND DURING THE SEARCH, THE ADDITIONS MADE WERE ON PRESUMPTIONS. 13. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIE S AND SUBMITTED THAT THE ADDITIONAL GROUND NOW TAKEN HAS NO S TRENGTH TO STAND ON, BECAUSE THE RETRACTION OF THE STATEMENT AND TREATING THE LTCG AS CLAIMED EARLIER AS NORMAL PROFIT IN ITSELF IS INCRIMINATORY. 14. WE HAVE HEARD THE ARGUMENTS AND HAVE PURSUED THE MATERIAL ON RECORD AND THE ORDERS OF THE REVENUE AUTH ORITIES. WE FIRST AGREE WITH THE SUBMISSIONS OF THE DR THAT SINCE THE ASSESSEE CHANGED HIS STAND FROM LTCG TO NORMAL GAIN IN IT SELF WOULD AMOUNT TO INCRIMINATING. THIS IS SO, BECAUSE, THE ASSESSEE WAS FORCED TO CHANGE HIS STATEMENT AND CLAIM IN THE RETURN, AFTER THE SEARCH. THIS CAN ONLY MEAN THAT WHAT HAS BEEN CLAIM ED IN THE ROI WAS NOT THE COMPLETE TRUTH. IN SUCH A CIRCUMST ANCE, WE REJECT THE ADDITIONAL GROUND. AFTAB E PATEL ITA 792/M/2010 AISHA AFTAB PATEL ITA 783/MUM/2010 6 15. COMING TO THE ORIGINAL GOA, THOUGH WE APPRECIATE THE AMOUNT OF SPADE WORK THAT THE REVENUE AUTHORITIES DID T O COME TO CERTAIN CONCLUSION, BUT ON THE OTHER HAND, NOWHERE IN EITHER OF REVENUE AUTHORITIES ORDERS, DO WE FIND THE NEGATION OF T HE DETAILS AND EVIDENCES FILED BY THE ASSESSEE, SO THAT THE R EVENUE AUTHORITIES COULD CLINCH THE INITIATIVE. WE FIND THAT THE CERTIFICATES OF BROKERS, I.E. ACTION FINANCIAL SERVICES (INDIA) LTD . AND DISTRICT SECURITIES PVT. LTD. ALONG WITH COMPLETE DETAILS HAVE NOT BEEN CONSIDERED IN COMPLETENESS. WE FIND THAT THE REFERENCES WERE MADE, TO THOSE DOCUMENTS, WHICH WERE AT THE DISADV ANTAGE TO THE ASSESSEE. 16. IN SUCH A CIRCUMSTANCE, WE ARE OF THE OPINION THAT TH E CASE NEEDS FRESH ADJUDICATION. 17. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RE STORE THE CASE TO THE FILE OF THE AO FOR FRESH AND DE NOVO PROCEEDINGS, WHEREIN THE ASSESSEE SHALL PROVIDE DETAILS TO THE AO. T HE ORDER, SHOULD BE IN ACCORDANCE WITH LAW, AND IT MAY BE MENTIONED THAT ADEQUATE AND REASONABLE OPPORTUNITY SHALL BE PROVIDED TO THE ASSESSEE IN THE CONDUCT OF THE PROCEEDING. 18. SINCE WE HAVE RESTORED THE CASE TO THE FILE OF THE A O, GROUND NO. 2 BECOMES ACADEMIC. 19. GROUNDS 1 & 2 AS RAISED ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALLOWED. ITA NO. : 783/MUM/2010 : AISHA AFTAB PATEL : 21. IN THIS APPEAL ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: AFTAB E PATEL ITA 792/M/2010 AISHA AFTAB PATEL ITA 783/MUM/2010 7 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) 37, MUMBAI HAS ERRE D IN HOLDING THAT THE CAPITAL GAINS OF RS. 21,06,273/ - RETURNED BY ASSESSEE IS BOGUS AND CHARGED THE SAME AS UNEXPLAINED CASH CREDIT ON THE GROUNDS THAT IN COMPUTING THE CAPITAL GAINS THE APPELLANT NEITHER SATISFACTORILY EXPLAINED THE PURCHASES OF SHARES NO R THE SALES THEREOF AND THEREFORE, THE NATURE AND SOURCES OF THE INCOME CREDITED TO THE BOOKS OF ACCOUNT REMAINED NOT PROPERLY EXPLAINED. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN HOLDING THAT 5% SERVICE CHARGE OF RS. 105,313/- BEING 5% OF RS. 21,06,273/- IS CHARGED TO TAX ON THE GROUND THAT SOURCE OF PURCHASE OF ABOVE SHARES WAS NOT PROPERLY EXPLAINED AS NO PERSON WILL ARRANGE THE BENEFIT OF NON-GENUINE LONG TERM CAPITAL GAIN TO OTHER PERSON WITHOUT CHARGING THE COMMISSION/SERVICE CHARGES. THE APPELLANT CRAVES TO LEAVE TO ADD, TO ALTER AND AMEND THE ABOVE GROUNDS OF APPEAL AS THE OCCASION MAY DEMAND OR CIRCUMSTANCES REQUIRE. 22. SINCE THE GROUNDS OF APPEAL ARE THE SAME AND THE FA CTS ARE ALSO IDENTICAL WITH ITA NO. 793/MUM/2010, WE ARE INCLINED TO TAKE THE SAME DECISION IN THIS CASE AS WELL, WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE CASE TO T HE FILE OF THE AO FOR FRESH AND DE NOVO PROCEEDINGS, WHEREIN THE ASSESSEE SHALL PROVIDE DETAILS TO THE AO. THE ORDER, SHOULD BE IN ACCORDANCE WITH LAW, AND IT MAY BE MENTIONED THAT ADEQUA TE AND REASONABLE OPPORTUNITY SHALL BE PROVIDED TO THE ASSE SSEE IN THE CONDUCT OF THE PROCEEDING. 23. SINCE WE HAVE RESTORED THE CASE TO THE FILE OF THE A O, GROUND NO. 2 BECOMES ACADEMIC. 24. GROUND NO. 2 THEREFORE BECOMES ACADEMIC. 25. GROUND NO. 1 & 2 ARE TREATED AS ALLOWED FOR STATISTICA L PURPOSES. 26. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR ST ATISTICAL PURPOSES. AFTAB E PATEL ITA 792/M/2010 AISHA AFTAB PATEL ITA 783/MUM/2010 8 TO SUM-UP: BOTH THE APPEALS OF THE ASSESSEES IN: ITA 792/MUM/2010 & ITA 783/MUM/2010 ARE ALLOWED FOR STATISTICAL PURPOSE ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY, 2015. SD/- SD/- ( ) ( ) * * * * * * * * (R C SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 18 TH FEBRUARY, 2015 $/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -37, MUMBAI. 4) THE CIT-CENTRAL-I, MUMBAI/CIT - CENTRAL-I, MUMBAI. 5) .'/0 $! G , , / THE D.R. G BENCH, MUMBAI. 6) 012 3 COPY TO GUARD FILE. *+! / BY ORDER / / TRUE COPY / / 4 / 5 6 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *895! '.!. *CHAVAN, SR.PS